Is there any basic exemption limit before deducting TDS on NRI payments?

Section 195 does not give a basic exemption limit. TDS applies whenever the sum is chargeable to tax in India, even on small amounts, though certain specific exemptions may apply to the nature of income.

How much TDS is deducted on NRO fixed deposit interest for NRIs?

Interest on NRO deposits and similar NRO investments is typically subject to 30% TDS (plus surcharge and cess, wherever applicable) under the Act unless a lower DTAA rate or a Form 13 certificate is available.

Can an NRI avoid high TDS through Form 13?

Yes, by applying under Section 197 using Form 13, an NRI can obtain a lower or nil TDS certificate so that buyers/tenants/banks deduct tax only on the estimated taxable income, not the full gross amount.

Which forms should a payer file after deducting TDS for NRIs?

The payer must deposit TDS via Challan 281, file quarterly Form 27Q, and issue Form 16A to the NRI; for remittances abroad, Form 15CA and, where applicable, Form 15CB are also required.

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NRI TDS Rate

NRI TDS rate is the Tax Deducted at Source on income payable to a Non-Resident or NRI, generally at higher flat rates (often 10%–30% plus surcharge and cess) unless reduced by a DTAA or a lower deduction certificate (Form 13) under Section 197. It primarily operates through Section 195 of the Income Tax Act, which requires the payer to deduct TDS if the income is chargeable to tax in India.

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Overview of NRI TDS and Section 195

Section 195 covers TDS on any sum (other than salary) payable to a non-resident if such income is taxable in India.
It applies to payments like interest, dividends, royalty, fees for technical services, and capital gains credited or paid to NRIs or foreign entities.
TDS must be deducted at the earlier of credit to the payee’s account or actual payment, even if credited to a suspense or payable account.

Who Is an NRI / Non-Resident?

A person is a resident if they satisfy the basic stay conditions in India: 182 days or more in the relevant financial year, or 60 days in that year plus 365 days or more in the preceding four years (subject to special relaxations for Indian citizens/PIOs).
Indian citizens/PIOs with Indian income above a specified threshold or leaving India for employment have modified day-count rules. Indian citizens / PIOs who do not meet any resident criteria are treated as non-resident for tax purposes.

Who Must Deduct TDS on NRI Payments?

Any person (resident or non-resident) making a taxable payment (other than salary) to a non-resident must deduct TDS under Section 195.
Deductors can include individuals, HUFs, firms, companies, AOP/BOI, foreign companies, and other juridical persons whenever they remit or credit amounts to NRIs.
For certain interest paid by specified financial institutions or under sections 194LB/194LC/194LD, other specific TDS sections may apply instead of Section 195.

NRI TDS Rates Under Section 195 (Finance Act + DTAA)

TDS on NRI income is generally applied at the rate under the Finance Act or the applicable DTAA, whichever is more beneficial to the NRI. Surcharge and 4% health and education cess apply on Finance Act rates but are not added to DTAA rates.

Major NRI TDS Rates (FY 2025–26)

The actual TDS rate depends on the type of income, the relevant section, and whether DTAA is claimed. Effective rates may increase after adding surcharge and 4% health and education cess, especially for high-value incomes.

Particulars	Rate
Interest paid by the Government or an Indian entity on foreign currency borrowings	20%
Royalty and fees for technical services paid by the Government or an Indian entity	20%
Winnings from card games, lotteries, crossword puzzles and similar games	30%
Winnings from horse races	30%
Winnings from online games	30%
Any other income	30%
Income earned by an NRI from investments (interest or dividend)	20%
Long‑term capital gains under Section 115E from transfer of shares of an Indian company, debentures or deposits of a public company in India, or government securities	12.5%
Long‑term capital gains from listed equity shares and securities covered by Section 112A on transfers made on or after 23/07/2024	12.5%
Long‑term capital gains from listed equity shares and securities covered by Section 112A on transfers made before 23/07/2024	10%
Other long‑term capital gains (not covered above)	12.5%
Short‑term capital gains of FII or specified funds on securities (excluding units of UTI or mutual funds)	20%

No Threshold Limit and Scope of Taxability

Section 195 does not prescribe a basic exemption threshold. If the payment is taxable in India, TDS can apply from the first rupee.
However, TDS is required only on sums chargeable under the Act. If the income is exempt or not deemed to accrue in India, no TDS is required.
For NRIs, many resident-friendly threshold exemptions (e.g., certain small interest limits) do not apply, leading to higher upfront TDS.

TDS Compliance: TAN, Payment, Return and Certificates

The payer must obtain a TAN (Tax Deduction Account Number) before deducting TDS and should also quote both TAN and PAN correctly in all filings.
TDS has to be deducted at the time of payment or credit and deposited to the government by the 7th of the following month using Challan ITNS 281 via authorised banks or online modes.
Deductors must file quarterly TDS returns in Form 27Q within the prescribed due dates (30 July, 31 October, 31 January, 31 May for Q1–Q4).
After filing, TDS certificates in Form 16A must be issued to the NRI within 15 days of the due date for the respective quarter’s TDS return.

Lower or Nil TDS for NRIs-Form 13 (Section 197)

If the default TDS rates (e.g., 20%/30% on gross amount) are higher than the actual tax liability, an NRI can apply online for a lower/nil TDS certificate under Section 197 using Form 13.
The Assessing Officer reviews income estimates, exemptions, and DTAA positions and, if satisfied, issues a certificate specifying reduced or nil TDS rates for identified deductors and incomes.
This certificate allows the payer to deduct TDS only on actual estimated taxable income (e.g., capital gains portion on property sale, net rental income after deductions), improving cash flow and reducing refund delays.

Forms 15CA and 15CB for Foreign Remittances

Before remitting funds outside India to an NRI/foreign company, the payer usually has to submit Form 15CA (information on foreign remittance) and, in many cases, obtain Form 15CB (CA certificate) through the e-filing portal.
Banks often insist on these forms to ensure that correct TDS has been deducted or that the payment is not taxable in India. Non-compliance can attract a penalty of up to ₹1 lakh under Section 271-I.

Consequences of Non-Compliance with NRI TDS

If TDS is not deducted or is short-deducted, the expense may be disallowed for business taxpayers and allowed only in the year the tax is subsequently paid.
Failure to deposit TDS on time can trigger interest (commonly 1% per month for non-deduction and 1.5% per month for non-payment after deduction) until the date of actual payment.
Penalties can equal the amount of tax not deducted/paid and may be accompanied by prosecution in severe or wilful default cases.

FAQs

Is there any basic exemption limit before deducting TDS on NRI payments?

Section 195 does not give a basic exemption limit. TDS applies whenever the sum is chargeable to tax in India, even on small amounts, though certain specific exemptions may apply to the nature of income.
How much TDS is deducted on NRO fixed deposit interest for NRIs?

Interest on NRO deposits and similar NRO investments is typically subject to 30% TDS (plus surcharge and cess, wherever applicable) under the Act unless a lower DTAA rate or a Form 13 certificate is available.
Can an NRI avoid high TDS through Form 13?

Yes, by applying under Section 197 using Form 13, an NRI can obtain a lower or nil TDS certificate so that buyers/tenants/banks deduct tax only on the estimated taxable income, not the full gross amount.
Which forms should a payer file after deducting TDS for NRIs?

The payer must deposit TDS via Challan 281, file quarterly Form 27Q, and issue Form 16A to the NRI; for remittances abroad, Form 15CA and, where applicable, Form 15CB are also required.

˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in

*Past 10 Year annualised returns as on 01-01-2026
*All savings plans are provided by the insurer as per the IRDAI approved insurance plan. Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
**Returns are based on past 10 years' fund performance data (Fund Data Source: Value Research).
^Returns as on 10th Jan'25. 18% returns for Tata AIA Life Top 200 for the last 10 years.The past performance is not necessarily indicative of future performance. Source: Morningstar

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